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19 October 2019
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Interviews

Gheorghe Russu

Vice-director, The Center for Combating Economic Crimes and Corruption

Parties-Phantoms, Parties - State Institutions, Parties - State Enterprises

Ion PREAŞCĂ

20 parties have registered in the current election campaign. Many people say it is a too big number for such a small country as Moldova. At the same time, much more parties could take part in the election campaign.

Last week illustrated
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Activists launch Moldova’s first ‘Space Camp’ © Susan Coughtrie

Who benefits from the change of managers?

Within the last two-three months a number of directors of state companies, or companies the state holds the major share of capital in, have been replaced, e.g. the general director of state company Moldelectrica and the directors of joint-stock companies Moldovagaz, Tutun-CTC, Energocom, Giuvaier, etc. According to the media that announce extraordinary meetings of shareholders, other directors of state companies could also be replaced the following days.
Ion DRĂGHIŞTEANU, 1 October 2008, 12:46

The sources from the Ministry of Economy and Trade say that the old staff is replaced by new people who often have neither studies nor experience in company management. Thus, the appointment of a young specialist in IT and not in energy as interim director general of Energocom, and that of a historian as director of Giuvaier raises some questions or at least bewilderment.

The reasons for dismissal are different: from expiry of the contract validity to the manager's resignation. However, in experts' opinion, the latter is often imposed as many of the managers have already been approved in their position by general meetings of shareholders held several months ago. By the way, representatives of the state have supported the candidacies of former managers at those meetings. The same experts say that the imposing modality is standard: managers are informed that they could become subjects of investigations or examinations as a result of some admitted violations (often minor ones) in the administration of companies. So, in order to avoid certain "complications" managers sign the resignation, although the violations are usually the result of fulfilling verbal indications of top officials. Curiously enough, not a single manager has been dismissed for incompetence or deficient management that would cause damage to the interests of the state and aggravate the economic situation of companies.

In general, the largest part of state companies' management had to be replaced long ago. But the change must cover not only managers, but also the style and concept of administration. For, normally a Moldovan state company incurs losses, produces unemployment and never pays its debts.

A report by the Ministry of Finance on the results of economic-financial monitoring of state companies and companies with integral or major state capital for 2007 showed that the average annual income of state companies amounted to 111.0 thousand lei per employee. At the same time, the average annual income from sales of joint-stock companies in 2007 made up 285.4 thousand lei per employee. In other words, the efficiency of the economic activity of state companies is 2.5 times lower than that of joint-stock companies, even if the latter have state-owned capital. If these results are compared to the efficiency of the economic activity of completely private firms, especially firms with foreign private capital, the difference would be tens times bigger.

The same report showed that in 2007 state companies received a record net profit of 913.0 million lei, which was by 653.9 million lei more than in 2006. The extraordinary result was mainly determined by the fiscal amnesty that lead to writing off debts in the amount of 459.15 million lei, as well as by variations of the exchange rate. Although debts were acquitted, the liabilities of state companies grew by 269.6 million lei and amounted to 1,983.6 million lei in 2007.

Almost the same was the case of joint-stock companies with state capital, where the net profit growth by 252.1 million lei was mainly determined by the fiscal amnesty that lead to writing off debts in the amount of 281.24 million lei.

A good example was Moldovagaz Joint-Stock Company that had a record profit of 542.9 million lei in 2007, as compared to losses of 227.3 million lei in 2006. However, the result was particularly determined by the differences of the leu/dollar exchange rate, which allowed reducing the debt to the Russian concern Gazprom accrued within the previous years. In other words, it is difficult to determine whether the company's success was the result of an extraordinary management. Besides, the former president of Moldovagaz, Ghenadie Abaschin, who had had one of the highest wages in the Moldovan economy for the position he had been holding for 6 years was replaced after the expiry of contract.

It is true that managers of state companies in the Republic of Moldova do not have too much freedom to decide upon the destiny of companies, and more so often lack motivation for the success of the company. For instance, according to unofficial information, the Ministry of Economy put up some companies for privatization this summer without even consulting their directors. Obviously this approach decreases the interest of managers in the success of the company they run.

As for the administration of state companies within the transition period, the case of Poland is eloquent. After 1990, when Poland liberalized imports and cut off subventions to state companies thus leaving them prey to capitalist competition, the world was expecting a large-scale economic collapse. Surprisingly, the exports of the Polish state companies increased rapidly, the economic activity intensified and acquired the dynamics of western markets. Before the private sector reached the current size, it was state companies that carried the burden of the most spectacular economic growth on the post-communist area. The essential element of Polish reforms was establishing healthy motivation for economic entities, motivations that automatically reduced the attractiveness of an inefficient behavior at social level - theft from one's own household, non-payment of debts to banks and the state, bankruptcy in favor of shell companies. The used tool had nothing to do with patriotism or labor culture, but the prospect of recompense in case of success and of punishment in case of violations of rules - a more than just traditional strategy. For a worker it meant correlation between labor and incomes, for a manager - that of the company's results and personal recompense. There was also a possibility to procure shares in the company during privatization at half price, for example.

Motivation is exactly what is currently missing in Moldova and what we desperately need. However, many managers continue to be appointed or dismissed based on kinship and friendship relations with the governance, on their contribution to success of the ruling party rather than based on professional skills.

 



Readers' comments
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iannn, 24 August 2009, 22:49
The country of origon of equity share holding and its subsequent mangement team
offer indications of financial trends with possible complications.
Monopoly of market space for share price elevation could lead to economic slow down. The internal economy starved of profit sharing may lead to social and political complications that make further elections volitile and unstable.
iannn, 25 April 2009, 14:43
When the government decide to sell state owned companies to the 'private sector' is there regulation and oversight?
All elected polititions should have thier personal intersets, for example;
members of board of directors;
Any politition in a position to grant large state infrastructure contracts.
Also do government polititions hold bank accounts in secret in Austria and Switzerland. This should be made public to remove any suspicion of corrupt payments to favour the sale of national assets and large state contracts.
iannn, 23 April 2009, 14:54
Do all elected members in goverment declare thier personal commercial interests to ensure that there is no political favours granted to companies that individual members may benefit from?
Are any prominent senior goverment members on the board or pay roll of outside energy companies; or major infrastructure contracts?
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